It’s been a miserable month for cryptos, with bitcoin down 35% from its May peak of $58 000.
Blockchain research group Glassnode notes that this prompted a rush for the exit door by relative newcomers to crypto who found themselves underwater for the first time this year.
Where are these newcomers going?
Khwezi Trade reports a doubling in the number of daily sign-ups during the crypto rout of the last month. This is a sign that traders who previously deserted forex and index trading for ‘sure bet’ crypto trading are now returning to forex and more traditional forms of trading and investment.
Explains chief operating officer Monty Barnard: “People [are] getting fed up with fake news moving the market. Elon Musk sends out a tweet and the price of cryptos takes a dive. You can’t make steady and predictable gains when you are up against that kind of market influence.”
Barnard adds: “Crypto trading involves a huge amount of speculation. People are learning that cryptos [are] close to gambling. The forex market has been around a long time and is driven by supply and demand dynamics that are more clearly understood by traders, and I think that is why we are seeing so many people returning to a form of trading they understand.
“What’s also important to bear in mind is that Khwezi is regulated by the Financial Sector Conduct Authority [FSCA], while crypto providers are not,” says Barnard. “Traders like the fact that we are licensed and regulated by the FSCA.”
Key factors to consider when trading forex
While crypto trading takes place 24/7, trading in forex, indices and commodities is closed from late Friday to early morning Monday.
Some might see that as a disadvantage, but forex trading wins hands-down in certain key respects:
- Forex traders are regulated by various financial oversight bodies around the world (this is starting to happen in cryptos, but there are currently no regulations for crypto providers in SA).
- Liquidity: the depth of the forex market is massive, so anyone can enter and close a trade in a micro second. When buying and selling cryptos, the market depth is limited to the exchange on which you are trading. If that exchange does not have deep liquidity (a lot of buy and sell orders) then you may not get your order filled at the price you want.
- Market volumes: traders love volatility because this creates price movement and, hence, opportunities for profit. Forex markets tend to be most volatile when markets in the US, Europe, Japan and Australia open.
When is the best time to trade?
As a South African trader, the best time to trade is when major market sessions overlap, says Barnard.
“This is generally between 10:00 and 16:00. During these hours South Africans can catch the last two trading hours of the Tokyo session, which overlaps with the opening of the London session, and a few hours later this session overlaps with the opening of the US markets.”
The London and the US sessions are generally the most active trading hours, and are prone to respond to the release of important economic news and data that could affect exchange rates.
Forex scalping strategies
Forex ‘scalping’ is a popular short-term strategy for taking small profits out of the forex market. The idea is not to be exposed to market moves for long periods of time (that would be what is called a ‘swing trading strategy’). A ‘scalper’ would look for short moves in price and a quick exit.
Take a look at the following example. The ‘scalper’ would ideally seek to buy this forex pair when it drops close to its previous low and to exit near the top of the previous trading range.
Scalpers place many small trades through the market session, focusing on small price movements with the effort of making a small profit. By placing a high frequency of trades, the scalper hopes to make small profits throughout the day that all add up when combined.
A forex scalping strategy comes with considerable risks and is reserved for traders who have a great deal of knowledge and skill, which takes time to acquire and perfect.
Khwezi Trade offers a number of online tutorials for those eager to try their hand at trading, though it is advisable to sign up for a demo trading account first to try out trading strategies without risking real money. Once you have tested those strategies, then you can put real money to work for you.
Markets and fees
Khwezi Trade allows trading on all the major and some minor currency pairs, and its offering includes commodities and all major indices. The company made a deliberate decision not to offer derivatives on JSE-listed shares and cryptos. Barnard says the most popular traded instruments are the Nasdaq, gold, oil and the euro/US dollar currency pair. In all, close to 40 currency pairs are available, seven commodities and 11 indices.
Spreads are generally tight and fees are as low as 0.5 of a pip (the smallest increment by which a currency pair can change price is 0.1 of a pip). The fees vary according to market liquidity and are generally wider in illiquid markets, but there are no admin, deposit, withdrawal or other hidden fees. Spreads can also widen when market volatility increases.
Client on-boarding is an easy and relatively quick process once the usual Know Your Customer documents (ID and proof of address) are uploaded, and deposits can be transferred to the client’s Third Party Fund Administrator account with a local top tier SA bank through an electronic funds transfer, avoiding the higher costs that come with offshore credit card transfers. Withdrawals are processed the same day they are requested and are usually deposited into the client’s account within 24 hours.
- Contracts for difference (CFDs) are a derivative instrument that track the price movement in the underlying forex pair (or index, commodity) without any physical delivery of goods or securities taking place.
Brought to you by Khwezi Trade.
Khwezi Trade is a division of Khwezi Financial Services, an authorized financial services provider. FSP 44816
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